The US added 467,000 jobs in January smashing analyst estimates and suggesting the US economy was bouncing back from an Omicron-induced slowdown at the end of 2021.
The Non-Farm Payrolls released on Friday far surpassed analyst estimates of 125,000 but was met with a mixed market reaction.
HUGE beat on #jobs creation — 467,000 compared to the median forecast of 125,000. That’s also higher than the top projection in the #Bloomberg survey
— Mohamed A. El-Erian (@elerianm) February 4, 2022
While the #unemployment rate ticked up, that is unlikely to be enough to contain a significant move up in yields at the short end
The FTSE 100 gave up all of Friday morning’s gains in the wake of announcement, while major US indices failed to benefit from a surging Amazon share price. The dollar rallied as GBP/USD erase yesterday’s gains to trade at 1.3514.
Although the reading showed the US economy was healthier than expected, it brings nearer the time the market will have the punch bowl of easy monetary removed by the Federal Reserve.
Economists and market watchers are now predicting the Fed could begin to raise US interest rates as soon as next month and kick of a global tightening cycle in earnest.
However, the market reaction – especially that of equities – suggests there is a concern such a move will damage the economy given the soaring rates of inflation and pressures on consumers.
Will the Fed still raise rates if we’re already in a recession by March?
— Sven Henrich (@NorthmanTrader) February 4, 2022
The US jobs data comes a day after the tightening of conditions in UK economy in the form of an interest rate hike and 50% increase in the energy price cap. In addition, the Bank of England seem set to increase rates further in the coming months after 4 of the 9 members of the MPC voted for a 0.5% increase in rates as opposed to the 0.25% increase announced yesterday.
“Inflation concerns are looming ever larger with the cost of living squeeze intensifying as monetary policy tightening ramps up, and no let-up in soaring energy prices in sight,’ said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“With a more aggressive attitude coming from the Bank of England towards reining in inflation, it has set the tone for more anxiousness about the effect of sharply rising prices will have on consumer confidence and corporate resilience.”
Although the market impact has been limited thus far, a global tightening in monetary policy has the potential to destabilise the recovery if inflation continues to squeeze consumers pockets.
The FTSE 100 has eased slighting over the last two trading session and still remains positive on the year. But this masks investor repositioning in shares focused on the UK economy and health of consumer spending power.
This is particularly evident in housebuilders with Taylor Wimpey, Barratts and Persimmon all down between 13%-16% so far in 2022.
Retailing shares are also suffering. JD Sports has given up 14% and Kingfisher is down 9%.
These moves have been recorded in a period where the FTSE 100 has carved out a 2% gain helped by overseas earners and commodity companies.
Vodafone is the FTSE 100 top performer in 2022 adding some 18%. Oil majors BP and Shell have contributed a significant number of points to the FTSE 100 this year with Shell gaining 16%.